AP60 is key in tough market: Rio Tinto

NEW YORK  Rio Tinto Alcan Inc. is pushing forward with technology that it believes will introduce a new era for aluminum smelting, but has no plans to hasten expansions or new projects given current market conditions.

The aluminum industry is suffering from oversupply and more capacity curtailments are necessary, chief executive officer Jacynthe Côté told AMM.

The biggest issue for the industry is that demand is healthy but supply must adjust, Côté said. Weve seen some good curtailments in 2013 but the industry needs more discipline.

The current market backdrop of a contango and low interest rates has, for some years, attracted metal into warehouses in financing deals. Those will likely remain attractive for a while, Côté said.

In the interim, premiums are skyrocketing. The U.S. Midwest aluminum premium is being quoted either side of 20 cents per pound, with even higher offers reported by traders and merchants, who say that material is tightly held.

But there is no issue for Rio Tinto Alcans customers in sourcing contracted material, Côté said; its output is in the form of value-added products, which are sent directly to customers.

She also noted the efforts by the London Metal Exchange to bring transparency and more sophisticated financial solutions to the aluminum industry.

I think its eventually going to land at the right place for customers and the global market. But the biggest issue for the industry is the high inventory, Côté said.

On Jan. 16, Rio Tinto Alcan, a subsidiary of London-based Rio Tinto Plc, inaugurated its Arvida aluminum smelter in Quebec, the first of its kind to be based on the companys newly developed AP60 technology (amm.com, Jan. 16).

The smelter, which was constructed with infrastructure for future expansions to 460,000 tonnes, has an initial capacity of 60,000 tonnes.

Right now, and despite the low cost benefits the technology brings, there is no plan to begin to expand further, Côté said. We are not going to shoot ourselves in the foot, given the market conditions, she said.

We have started with 60,000 tonnes at Arvida, and this shows our extreme discipline level. In British Columbia, were modernizing and expanding, but much less than what we have already curtailed, she added.

The company has already curtailed more than 600,000 tonnes of aluminum from its global network amid weak futures prices and record-high LME-approved warehouse inventories.

Côté said that if Rio Tinto Alcan had not taken some tough decisions on closing capacity in the past few years, (those smelters) could be bleeding quite a bit of money now.

I have to think that some of the assets in the global smelting industry are getting into a pretty tough place, she said.

Each production cell of the Arvida smelter will produce around 40 percent more aluminum than previous-generation technology, pushing the company into what Côté described as a new era for smelting.

AP60 provides improvements in productivity, and reductions in energy and environmental footprints, she noted.

The Montreal-based company, whose various generations of smelting technology have for many years been used by the industry globally, has already taken calls from potential AP60 customers.

Weve been very disciplined in reducing basic costs in our current operations, and weve been extremely disciplined on portfolioyouve seen the list of assets weve sold or shut down or curtailed, she told AMM.

But we are also investing in the long term to remain competitive, she concluded, and that new technology is clearly, through the innovation, a big lever to remaining competitive.